Green Finance – A voluntary Action Plan


Target 13.3*: Improve education, awareness raising and human and institutional capacity on climate change mitigation, adaptation, impact reduction, and early warning.


How Stock Exchanges can Grow Green Finance

The SSE Green Finance Action Plan

Download full report here: How Stock Exchanges can Grow Green Finance

Background

In 2015, world leaders met in Paris and agreed on ambitious goals to avoid the worst effects of climate change. The same year, countries worldwide agreed on the United Nations Sustainable Development Goals (SDGs) which include a clear call to action on climate change. Meeting these global goals will require a transition to green and sustainable financial markets. In order to create the new forms of green and blended finance as set out in the Paris Agreement and the SDGs, there is a need for both the promotion of green products specifically, as well as the greening of mainstream financial markets more broadly. This guidance seeks to help stock exchanges start or further enhance their work on green finance by providing them with an action plan.

Value Proposition

Green and sustainable finance offers benefits and opportunities for stock exchanges. Green finance products have already been introduced in several markets and have seen tremendous growth, with green bond and green equity indices outperforming their non-green benchmarks. Green finance is nevertheless still in its early stages: as of 2017 green equities were only about 5% of overall listed value and only around 0.2% of total bond issuance worldwide was made up of labelled green bonds. This presents significant growth opportunities for exchanges and other market actors, with potential concomitant revenue growth opportunities, and in some markets this has allowed exchanges to strengthen their competitive position.

Challenges

Promoting green products and greening financial markets are not without challenges for stock exchanges. This guidance addresses a number of specific challenges, obstacles and barriers including: insufficient supply to meet investor demands; insufficient liquidity of green products; terminology confusion (what is ‘green’?); operational capacity constraints of exchanges; regulatory hurdles; and poor availability of relevant data. Each of these challenges has already been faced by an exchange or other capital market stakeholder and the lessons-learned from their experiences can help other exchanges. Moreover, stock exchanges are not expected to address all these challenges in isolation. Exchanges will need to work with a range of stakeholders including investors, issuers, index providers, standard setters, regulators and policy makers. These other market stakeholders may also find this guidance useful to better understand how their own green finance roadmaps can better align with their stock exchange.

An Action Plan

The growth of green finance depends on both promoting green finance products as well as greening mainstream financial markets. A green finance action plan is offered to guide stock exchanges in the implementation of green finance strategies. This voluntary action plan provides exchanges with a checklist of 12 action points within 4 action areas. It can be used as a self-assessment tool to identify areas where stock exchanges can initiate or expand their activities on green finance. Real world examples are provided for each action item to assist with implementation.

The SSE green finance action plan identifies two main action areas that stock exchanges should work on in parallel. First, the promotion of green labelled products and services helps direct funding towards green projects and environmentally aligned issuers (action area 1). Secondly, more systematic and holistic changes must take place to support a green transition and ensure market resilience to the economic impacts of climate change (action area 2). In addition to these two main action areas, the guidance also identifies two crosscutting action areas that will facilitate green finance efforts in the first two action areas: strengthening the quality and availability of climate related and other environmental disclosure among issuers and investors (action area 3); and contributing to the growth of dialogue and consensus building on green finance with other capital market participants (action area 4). Throughout all four of these action areas, partnerships are key.

In order to assist stock exchanges in self-assessing their current state of play on green finance, and to help develop their own roadmap, a diagnostic checklist has been developed The SSE Green Finance Diagnostic Checklist allows an exchange to benchmark their current support for green capital markets, and helps an exchange better visualise what action areas present further opportunities.

This action plan was developed with the contribution of a multistakeholder Advisory Group of over 70 experts from more than 60 institutions across 28 countries (as well as 6 international organisations), including stock exchanges, asset owners, asset managers, issuers, financial service providers, civil society representatives and leading international green finance specialists. This work aims to synthesise efforts already being undertaken, identify specific items of relevance for stock exchanges and highlight the key areas of impact.

Download: How Stock Exchanges can Grow Green Finance: A Voluntary Action Plan

SSE Events on Green Finance:


*Like many UN initiatives, the SSE looks to the SDGs to help focus its activities. The SDGs cover a broad range of environmental and social targets categorized into 17 goals and 169 targets. Of these, the SSE focuses on five SDG targets that are particularly relevant for stock exchanges.

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